Excerpts from Michael E. Berumen's book, "Do No Evil: Ethics with Applications to Economic Theory and Business," as well as writings on other topics, including animal rights, George Bush, capital punishment, Churchill, economics, God, liberalism, religion, philosophy and science.

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I suppose it is kind of preposterous that one imagines himself important enough to write down his opinions for others to read. Chattering superciliousness is one of the most infuriating things about academics and so-called intellectuals, generally, who feel compelled to share their thoughts. But here it goes, anyway.

Financial Prudence, Republican Style

By Michael E. Berumen 6-25-05

I am at once amused and rather annoyed by the myth that the Republicans are better managers of money than Democrats. It is a canard that persists, despite abundant empirical evidence to the contrary. Many assume that the party most identified with business is also good at dealing with money. The GOP's identification with business most likely got its legs under President Taft, following the apostasy of trust buster and party spoiler, Teddy Roosevelt, and it solidified under Presidents Harding and Coolidge, both sycophants of big business interests. The latter nearly made a religion of it when he wrote, "The man who builds a factory builds a temple. The man who works there worships there." And not least of all, Republicans have been adept at promoting themselves as astute financial managers. The fact is, they have always been better at marketing than at handling money, especially other people's money.

Business seeks political power to protect its own interests, and not in order to further the national interest, though those ends are sometimes congruent. Business has shown often enough that it will sleep with the Devil if it furthers the attainment of its ends. And because of this, the business class will just as easily cozy up to Democrats when it becomes necessary. Most business PACs, for example, play both sides against the middle, making contributions to both parties and to candidates holding opposite positions on an issue. It is certainly true, however, that business is more comfortable with the GOP, in large part because of Republican tax policies and anti-regulatory rhetoric.

I suspect the business class, as a whole, tends to be uneasy with the minority interests, messy politics, and petty intellectualism that often dominate the Democratic Party. Democratic politics are alien to their managerial sensibilities and what I think many Republicans imagine to be their greater pragmatism. In any case, the predilection businesses have for Republicans is certainly not justified by historical fact, for the overall economy has not performed as well under Republicans as it has under Democrats, and the federal budget has not been managed as effectively. Besides, as any student of business history knows, a very large percentage, perhaps even the majority, of businesses fail; so it simply does not follow that the political party allied with business also will excel at handling money.

Let us begin with the federal deficit, which many use as a measure of prudent management. Looking at Republican and Democratic administrations from Kennedy through Clinton, 20 years of each kind, and adjusting for inflation using 1996 dollars, we find that twenty years of Republican budgets increased our debt by $3.8 trillion, with an average yearly deficit of $190 billion. In contrast, twenty years under Democratic presidents increased the debt by $719.5 billion, with an average yearly deficit of $36 billion. During this same period, total federal spending rose at an average rate of 7.57% while Republicans were president, and at an average rate of 6.96% under Democratic presidents. OK, then, let’s take defense spending out of it, since some might argue Republicans were saddled with higher bills for a defense build up. In this case, under Republicans, our non-defense spending rose at an average rate of 10.08%, whereas, under Democrats it rose an average of 8.34%. In other words, that does not help the Republican case at all. It is of course quite true that Democrats tend to tax and spend. On the other hand, Republicans borrow unashamedly, and then they spend even more.

What about the general economy? Businessmen are especially apt to think things will go better for them with Republicans. Again, however, the evidence confutes the conventional wisdom. For twenty years in which Republican presidents submitted a budget, the average rate of GDP growth was 2.94%. For the twenty years in which Democratic presidents submitted budgets, the average rate of GDP growth was 3.92%. Using the same periods, the inflation rate under Republicans was 4.96%, whereas it was 4.26% under Democrats. As for unemployment, during these periods it averaged 6.75% under Republicans and 5.1% under Democrats.

The Stock Trader’s Almanac shows that since 1900, the S&P 500, perhaps the best measure of the general health of business in our country, averaged a 13.4% annual return under Democratic presidents as opposed to 8.1% under Republican presidents. What happens if we eliminate the extremes? By removing the Hoover administration, the start of WWII under Roosevelt, and Nixon’s inflationary second term, stockholders were still 2.7% better off under Democratic administrations. Not one significant measure of performance shows that Republicans are better at running the economy.

What about the longer view with the GDP? This doesn’t help them, either. In fact, it’s even worse for the GOP. Since 1930, which is the first year solid data became available, real growth averaged 5.4% under the Democrats and only 1.6% for the Republicans. In other words, just about any way one looks at it, the economy has performed better under Democratic administrations. And, let us not forget, Republican Herbert Hoover presided over the first several years of the Great Depression, our greatest economic catastrophe, and the several administrations that led up to it were also Republican.

Not convinced? Maybe you think it had more to do with who was in charge of the Congress. Alas, this does not help the Republican cause, either. According to Slate Magazine, since 1900, the Republican Senate showed S&P returns of 9.4% versus 10.5% for a Democratic Senate, and 8.1% and 10.9%, respectively, for the House of Representatives.

Some will no doubt say that such statistics are misleading, for they do not account for the time necessary for Republicans to make corrections, and that they unfairly allow Democrats to take credit for the work of others. However, the comparisons hold up just as well even if we eliminate the first year of office of both, giving them each time to correct the errors of their predecessor or to make new ones of their own. Republicans cannot win the argument by shifting time periods.

Then there’s the myth that Republicans deplore big government. This is especially laughable. Just in case the foregoing history of expenditures does not put that tall tale to rest, put this additional nail in the coffin: of the nearly 369,000 non-defense employees that were added to the federal payroll from 1961-2001, only 16% were added under Democratic presidencies, whereas, 84% of them were added under Republican administrations. And not one, again, not one Republican administration had a net reduction. In contrast, both Presidents Carter and Clinton presided over smaller governments at the end of their administrations than the ones they inherited. So much for the "Republicans dislike big government" argument; it is a demonstrably false proposition.

President Bush does not excel at very much in my judgment, and he and his Republican Congress have been simply disastrous when it comes to the economy and managing taxpayer money. His track record would make the foregoing numbers even worse. Time will tell if he can turn it around; but he’s quickly running out of time. According to economist Robert Samuelson, even excluding defense and key entitlement programs such as Social Security and Medicare, federal spending has risen 4.8% per year under Bush, which is the highest rate since another Republican, Richard Nixon, held office. Indeed, Bush rammed through the most costly spending program since Lyndon Johnson’s Great Society: the Medicare drug plan. And not one dime of its cost is paid through current revenue; it is all from deficit financing. In his fifth year of office, President Bush still has not vetoed even one spending initiative. President Clinton was positively parsimonious by comparison.

Now, some might think I believe Democrats are a whole lot better than Republicans at money management. No, I think they are only somewhat better, and certainly not enough to brag about. History, however, shows that Democrats are more likely to live within their means, and that they are less likely to create economic mischief, in part, no doubt, because of their lack of unity. I think history also shows that Democrats have done more for capitalism than Republicans in the last century. Just to cite several examples, Franklin Roosevelt squelched the seeds of a burgeoning socialist revolution by dealing with capitaism's rough edges; Jimmy Carter deregulated more economic sectors than Ronald Reagan, and he had the wisdom to appoint Paul Volker to the Fed, who did all of the heavy lifting to shackle inflation, for which Reagan falsely took credit, and which was the necessary ingredient for the expansion of the 80s and 90s; and Bill Clinton gave greater impetus to economic globalism (e.g., through NAFTA, among other initiatives) and the growth of capitalism, worldwide, than any president before or since.

To be sure, Democrats have a propensity to talk as though are going to implement a great many costly social programs, but mostly it’s just so much hot air. Once elected, they seem to become more circumspect in managing their checkbook than their rhetoric would suggest. In contrast, Republicans talk as though they are going to do a lot of belt tightening and cutting of useless programs, but that's also a lot of hot air; all they really manage to do is to spend even more than the Democrats on borrowed money, money that will have to be paid back by future generations, with interest. In other words, both parties tend to do the opposite of what one might expect. But they also will say what is necessary for them to get elected.

The sad truth is that the duplicitous rhetoric of campaigning is more significant in forming the perceptions of the party faithful about what their party stands for than is their party's actual performance while in office. That is one reason why those of us who are not so partisan and rather less faithful tend to be cynical about politicians of any stripe. In any event, one thing is certain, historically, the Republicans have done worse than the Democrats in the economic realm, and there is little evidence to suggest that this will change in the near term. I remain hopeful, nevertheless.